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INTRODUCTION
INTRODUCTION
A Multinational organization with high money chance is probably going to confront monetary
troubles which have a tendency to have an upsetting on the working side of the business.
A disturbed monetary conditions are probably going to:
The world nations are increasingly becoming more interrelated global trade, and global
investment. These international result in cross country flow of world nations. Countries hold
currencies of other countries and that a market, dealing of foreign exchange results.
Foreign exchange means reserves of foreign currencies. More aptly, foreign exchange refers to
claim to foreign money balances. Foreign exchange gives resident of one country a financial
claim on other country or countries. All deposits, credits and balances payable in foreign
currency and any drafts, travelers’ cheques, letters of credit and bills of exchange payable in
foreign currency constitute foreign exchange. Foreign exchange market is the market where
money denominated in one currency is bought and sold with money denominated in another
currency. Transactions in currencies of countries, parties to these transactions, rates at which one
currency is exchanged for other or others, ramification in these rates, derivatives to the
currencies and dealing in them and related aspects constitute the foreign exchange (in short,
forex) market.
The importance of the study is to know the features of foreign exchange and the factors creating
risk in foreign exchange transactions and the techniques used for managing that risk
1.2.OBJECTIVES OF THE STUDY
To study and analyze Indian currency when the exchange rates fluctuate.
To analyze volatility and find out the volatility risk when the foreign currencyare
converted into Indian rupees.
To study the different types of foreign exchange exposure including risk and risk
management techniques which the company is used to minimize the risk using volatility
indicator RSI.
To present the findings and conclusions of the company in respect of foreign exchange
risk management
1.3.RESEARCH METHODOLOGY:
Primary data source: Taking help from investors, brokers, forex analysts, currency
portfolio management and service executives.
Secondary data source: Books, journals, magazines, newspapers, internet etc.,
TYPE OF RESEARCH
In this project Descriptive/statistical research methodologies were use.
The research methodology adopted for carrying out the study was at the first
stage theoretical study is attempted and at the second stage observed online
trading on NSE/BSE.
SOURCE OF DATA COLLECTION
Secondary data were used such as various books, report submitted by
RBI/SEBI committee and NCFM/BCFM modules.
1.4.2.SAMPLING TECHNIQUE
100
1 + RS
People can take review from market through this project. Management people can get overall
idea about the risk management regarding working of foreign exchange. They also
understand what information provides to investor for avoiding the risk in foreign exchange .
Research design is also called as the research strategy and the various steps or stages that a
research design may include can be summarized as follows –
Historical Data collected from NSE India website for calculation of risk events in currency prices
CHAPTER-2
REVIEW OF LITERATURE
Milan (1996) provides empirical evidence on the determinants of corporate hedging decisions.
In his paper he examines the evidence in the light of mandated financial reporting requirements
in general and constraints placed on anticipatory hedging in particular. Data on hedging is
obtained from the 1992 annual reports for a sample of 3022 US firms. Out of 771 firms classified
as hedgers, 543 firms disclose information in their annual reports on their hedging activities; the
remaining 228 firms report use of derivates but no information on hedging activities is provided.
Study finds robust evidence that larger firms are more likely to hedge.
Grant and Marshall (1997) conducted a survey of large UK companies to ascertain their usage
of derivatives. They examined the extent of derivatives usage, the reasons behind their usage, the
perceived risk associated with derivatives, the control mechanism to monitor the derivatives used
and the reporting practices which governed the usage of derivatives. The results of the survey
indicated widespread usage of derivatives like swaps, forwards and options. The primary reason
for their use was to manage interest rate and currency risks. There was a rather limited but
growing use of derivatives to manage commodity and equity risks. Treasurers of the sampling
firms reported that they were somewhat cautious about more exotic types of derivatives,
primarily because of concern over the illiquidity of the underlying market for these derivatives.
Interestingly, they revealed that they viewed control and the nature of their counterparty as the
main risk in using derivatives. Finally, the use of derivatives was accompanied by significant
control mechanism within the companies and treasurers were using sophisticated methods to
quantify their exposure to derivatives before they were reported at board level.
Berkman, Bradbury and Magan (1997) presents the result of survey of derivatives use by 79
New Zealand firms and compare the use of derivatives between non-financial firms in New
Zealand and the United States. Although New Zealand is a small open economy with an under-
developed financial market compared to US, across all firm sizes, relatively more NZ firms use
derivatives. This greater use of derivatives despite higher transaction costs reflects the relatively
high exposure of NZ firms. The study finds that 68.6% derivative users felt that USD was the
main currency to which the firm was exposed and 29% felt it was Australian Dollar. 62% of
respondents mentioned reducing the fluctuations in earnings is the major objective behind the
usage of derivatives. Study also find that NZ firms report more frequently on their derivative
positions to their boards of directors than US firms. However, the types of transactions that
derivatives are being used to hedge and the objectives of risk management are very similar
between NZ and US firms.
Makar and Huffman (1997) examined how foreign exchange derivatives (FXDs) were used by
64 U.S. multinationals facing potentially significant economic exposure, to manage currency
risk. The results indicated that FXD use was positively associated with foreign currency
exposure. Moreover, there was evidence that these results were not sensitive to industry
membership or other differences across firms and reporting years. Evidence of the use of
multiple hedging techniques was also provided.
Bodnar, Martson and Hayt’s (1998) conducted a Wharton survey of financial risk management
by 399 US non-financial firms. The results show that foreign currency derivatives are the most
commonly used class of derivatives with 83 percent of derivatives-using firms utilizing them.
They asked firms to indicate their percentage of total revenues and costs in foreign currency. A
reasonable percentage of firms reported neither foreign currency revenue nor foreign currency
costs. On the other hand, 40 percent of the firms reported foreign currency revenues of 20
percent or more of total revenues, while 36 percent of the firms reported foreign currency
expenses of 20 percent or more of total expenses. So, many firms in the survey had significant
foreign currency exposure. The survey showed that the most frequently cited motivation for
transacting in foreign currency derivatives markets was for hedging near-term, directly
observable exposures. The most commonly hedged exposures were on-balance-sheet
commitments (89 percent hedged frequently or sometimes), transactions anticipated within one
year (85 percent hedged frequently or sometimes), and foreign repatriations (78 percent hedged
frequently or sometimes). Partial hedging appeared to be a normal practice of these firms.
Results reveal that the majority of firms hedge less than 25 percent of their perceived exposure.
This suggests that reducing the exposure is preferred over completely eliminating them. Study
reveals that options are less frequently used than forwards. Furthermore they find that options are
mainly used in long-term exposures. Firms avoid using options either because of the cost they
incur in order to get the options or because they find another instrument that is better suited for
the given exposure.
Howton and Perfect (1998) examined use of derivatives in samples of 451 Fortune 500 / S&P
500 (FSP) firms and 461 randomly selected firms operating in
USA. The study was based purely on the secondary data available in the company’s annual
report. They found that over 61 percent of the FSP firms and 36 percent of the random firms
used derivatives. In the two samples, forwards and futures were the most-often used currency
contracts. The results are consistent with the argument that fewer firms in the random sample are
using currency derivatives as compared to FSP firms and for those random sample firms, the
main consideration is exposure to currency movements. For the FSP sample derivatives use is
directly related to financial distress and external financing costs, tax considerations, and
currency-risk exposure, and inversely related to hedging substitutes. The results for the random
sample differed considerably from previous studies. Derivatives use in the random sample is
unrelated to most of the proxies for the theoretical hedging determinants.
Marshall (1999) conducted a simultaneously survey of the foreign exchange risk management
practices of large UK, USA and Asia Pacific multinational companies (MNCs). He investigated
whether foreign exchange risk management practices vary internationally. From 179 (30%)
usable responses it is shown that there are statistically significant regional differences in the
importance and objectives of foreign exchange risk management, the emphasis on translation and
economic exposures, the internal/external techniques used in managing foreign exchange risk
and the policies in dealing with economic exposures. In general, UK and USA MNCs have
similar policies, with a few notable exceptions; however, Asia Pacific MNCs display significant
differences. To control for regional variations in the characteristics of respondents the results are
also compared by size, percentage of overseas business and industry sector.
It was found that either the size of the respondent or the industry sector could also explain the
emphasis on translation and economic exposure and use of external hedging instruments.
Kedia and Mozumdar (1999) examine the role of foreign currency denominated debt in firms'
risk management activities. In a sample of large US firms, they found a strong relationship
between the aggregate foreign exchange exposure and foreign currency denominated debt. This
relationship between exposure and foreign currency denominated debt also holds at the
individual currency level. Firms' choice of denominating debt in Australian Dollar, Canadian
Dollar, French Franc, German Mark, Italian Lira and British Pound is related to their exposure in
these currencies. However, firms' choice of denominating debt in Swiss Franc and Japanese Yen
is influenced not by exposure in these currencies, but by the high liquidity offered by the debt
markets in these currencies. The evidence also suggests that creditors’ rights and information
asymmetries influence the choice of the currency of debt. However, the authors find no evidence
in favour of tax arbitrage-induced currency preferences in the denomination of debt.
Lodder and Pichler (2000) conducted a survey of risk management practices of Swiss Industrial
corporations. Study analysed whether Swiss firms are conscious of their currency exposure. They
found that less than 40 percent of the firms are able to quantify their risk. They are able to come
out with two major reasons to explain why firms do not measure their foreign currency exposure
- it is difficult to measure the risk and firms believe their exposure is small. Study reveals that
guaranteeing cash flows, reducing financing cost, simplifying planning, preventing losses and
reducing taxes are the main reasons for managing currency risk. They found that most often
transaction exposure is hedged by Swiss companies. Translation and economic exposures appear
to be less important from their perspective. It is observed that firms often manage economic
exposure by lending and borrowing in foreign currencies. They cite the following reason for not
hedging economic exposure: firms are unable to anticipate the size and the currency of future
cash flows with confidence; the firms already hedge transaction exposure and hence believe that
in the long term currency fluctuations offset each other. Surprisingly, the cost of hedging
economic exposure is not regarded as an obstacle.
Glaum (2000) conducted a survey of foreign exchange risk management by 74 large German
non-financial corporations. The study concludes that the majority of the firms are concerned
about managing their transaction exposure. Most firms adopted a selective hedging strategy
based on exchange rate forecasts. Only a small minority of firms did not hedge foreign exchange
risk at all, and only few companies hedge their transaction exposure completely. Looking in
more detail at the management of the firms' exposure to the US-dollar, the survey found that only
16% of the firms were fully edged. The majority of firms had realized hedge ratios between 50
and 99%. There were numerous German non financial firms which were concerned about
managing their accounting exposure and some firms are actively managing it. This is in contrast
to the exposure concept supported by academic literature which holds that economic exposure is
of little importance in practice. The most interesting finding from an academic point of view,
however, is the widespread use of exchange rate forecasts and of
exchange risk management strategies based on forecasts (selective hedging). By adopting such
strategies, the managers indicate that they do not believe that the foreign exchange markets are
information efficient and they are able to beat the market with their own forecasts. The academic
literature, on the other hand, emphasizes that it is very difficult indeed to make systematically
successful exchange rate forecasts.
Introduction:
The foreign exchange market (forex, FX, or currency market) is a global decentralized
market for the trading of currencies. In terms of volume of trading, it is by far the largest market
in the world. The main participants in this market are the larger international banks. Financial
centers around the world function as anchors of trading between a wide range of multiple types
of buyers and sellers around the clock, with the exception of weekends. The foreign exchange
market determines the relative values of different currencies.
The foreign exchange market works through financial institutions, and it operates on
several levels. Behind the scenes banks turn to a smaller number of financial firms known as
“dealers,” who are actively involved in large quantities of foreign exchange trading. Most
foreign exchange dealers are banks, so this behind-the-scenes market is sometimes called the
“interbank market”, although a few insurance companies and other kinds of financial firms are
involved. Trades between foreign exchange dealers can be very large, involving hundreds of
millions of dollars. Because of the sovereignty issue when involving two currencies, forex has
little (if any) supervisory entity regulating its actions.
The foreign exchange market assists international trade and investments by enabling
currency conversion. For example, it permits a business in the United States to import goods
from the European Union member states, especially Eurozone members, and pay Euros, even
though its income is in United States dollars. It also supports direct speculation and evaluation
relative to the value of currencies, and the carry trade, speculation based on the interest rate
differential between two currencies.
Its huge trading volume representing the largest asset class in the world leading to high
liquidity;
Its geographical dispersion;
Its continuous operation: 24 hours a day except weekends, i.e., trading from 22:00 GMT
on Sunday (Sydney) until 22:00 GMT Friday (New York);
The variety of factors that affect exchange rates;
The low margins of relative profit compared with other markets of fixed income; and
The use of leverage to enhance profit and loss margins and with respect to account size.
As such, it has been referred to as the market closest to the ideal of perfect competition,
notwithstanding currency intervention by central banks.
According to the Bank for International Settlements, the preliminary global results from
the 2013 Triennial Central Bank Survey of Foreign Exchange and OTC Derivatives Markets
Activity show that trading in foreign exchange markets averaged $5.3 trillion per day in April
2013. This is up from $4.0 trillion in April 2010 and $3.3 trillion in April 2007. Foreign
exchange swaps were the most actively traded instruments in April 2013, at $2.2 trillion per day,
followed by spot trading at $2.0 trillion. According to the Bank for International Settlements, as
of April 2010, average daily turnover in global foreign exchange markets is estimated at $3.98
trillion, a growth of approximately 20% over the $3.21 trillion daily volume as of April 2007.
Some firms specializing on foreign exchange market had put the average daily turnover in excess
of US$4 trillion. The $3.98 trillion break-down is as follows:
In finance, an exchange rate (also known as a foreign-exchange rate, forex rate, FX rate
or Agio) between two currencies is the rate at which one currency will be exchanged for another.
It is also regarded as the value of one country’s currency in terms of another currency. For
example, an interbank exchange rate of 119 Japanese yen (JPY, ¥) to the United States dollar
(US$) means that ¥119 will be exchanged for each US$1 or that US$1 will be exchanged for
each ¥119.
Exchange rates are determined in the foreign exchange market, which is open to a wide
range of different types of buyers and sellers where currency trading is continuous: 24 hours a
day except weekends, i.e. trading from 20:15 GMT on Sunday until 22:00 GMT Friday. The spot
exchange rate refers to the current exchange rate. The forward exchange rate refers to an
exchange rate that is quoted and traded today but for delivery and payment on a specific future
date.
In the retail currency exchange market, a different buying rate and selling rate will be
quoted by money dealers. Most trades are to or from the local currency. The buying rate is the
rate at which money dealers will buy foreign currency, and the selling rate is the rate at which
they will sell the currency. The quoted rates will incorporate an allowance for a dealer's margin
(or profit) in trading, or else the margin may be recovered in the form of a commission or in
some other way. Different rates may also be quoted for cash (usually notes only), a documentary
form (such as traveler's cheques) or electronically (such as a credit card purchase). The higher
rate on documentary transactions has been justified to compensate for the additional time and
cost of clearing the document, while the cash is available for resale immediately. Some dealers
on the other hand prefer documentary transactions because of the security concerns with cash.
A market-based exchange rate will change whenever the values of either of the two
component currencies change. A currency will tend to become more valuable whenever demand
for it is greater than the available supply. It will become less valuable whenever demand is less
than available supply (this does not mean people no longer want money, it just means they prefer
holding their wealth in some other form, possibly another currency).
Increased demand for a currency can be due to either an increased transaction demand for
money or an increased speculative demand for money. The transaction demand is highly
correlated to a country's level of business activity, gross domestic product (GDP), and
employment levels. The more people that are unemployed, the less the public as a whole will
spend on goods and services. Central banks typically have little difficulty adjusting the available
money supply to accommodate changes in the demand for money due to business transactions.
Speculative demand is much harder for central banks to accommodate, which they
influence by adjusting interest rates. A speculator may buy a currency if the return (that is the
interest rate) is high enough. In general, the higher a country's interest rates, the greater will be
the demand for that currency. It has been argued [by whom?] that such speculation can
undermine real economic growth, in particular since large currency speculators may deliberately
create downward pressure on a currency by shorting in order to force that central bank to buy
their own currency to keep it stable. (When that happens, the speculator can buy the currency
back after it depreciates, close out their position, and thereby take a profit.)[citation needed]
For carrier companies shipping goods from one nation to another, exchange rates can
often impact them severely. Therefore, most carriers have a CAF charge to account for these
fluctuations.
Foreign-exchange reserves (also called forex reserves or FX reserves) are assets held by
central banks and monetary authorities, usually in different reserve currencies, mostly the United
States dollar, and to a lesser extent the Euro, the Pound sterling, and the Japanese yen, and used
to back its liabilities, e.g., the local currency issued, and the various bank reserves deposited with
the central bank, by the government or financial institutions.
Foreign exchange controls are various forms of controls imposed by a government on the
purchase/sale of foreign currencies by residents or on the purchase/sale of local currency by
nonresidents.
Common foreign exchange controls include:
Often, foreign exchange controls can result in the creation of black markets to exchange
the weaker currency for stronger currencies. This leads to a situation where the exchange rate for
the foreign currency is much higher than the rate set by the government, and therefore creates a
shadow currency exchange market. As such, it is unclear whether governments have the ability
to enact effective exchange controls.
This is an incomplete list that may not be able to satisfy particular standards for completeness.
You can help by expanding it with reliably sourced entries.
Argentina Georgia
Armenia Ghana
Bahamas Iceland
Barbados India
Belize Iran
Brazil Israel
China Libya
Cuba Malaysia
Egypt Mauritius
Fiji
Theoretically speaking, exchange controls were abolished in 1994, but the rules still state
that repatriation of foreign investment and the profits from it is subject to proof of the origin of
the money, and subject to payment of any outstanding Mauritian taxes.
Morocco Russia
Namibia Sudan
Nepal Tunisia
Nigeria Ukraine
Pakistan Venezuela
Samoa
Retail foreign exchange trading is a small segment of the larger foreign exchange market
where individuals speculate on the exchange rate between different currencies. This segment has
developed with the advent of dedicated electronic trading platforms and the internet which have
allowed individuals to access the global currency markets. In 2013 it had been speculated that
volume from retail foreign exchange trading represents 5 percent of the whole foreign exchange
market which amounts to $250 billion in daily trading turnover.
Prior to the development of forex trading platforms in late 1990s forex trading was
restricted to large financial institutions. It was the development of the internet, trading software
and forex brokers allowing trading on margin that started the growth of retail trading. Traders are
able to trade spot currencies with market makers on margin. Meaning they need to put down only
a small percentage of the trade size and can buy and sell currencies in seconds.
Foreign exchange risk (also known as FX risk, exchange rate risk or currency risk) is a
financial risk that exists when a financial transaction is denominated in a currency other than that
of the base currency of the company. Foreign exchange risk also exists when the foreign
subsidiary of a firm maintains financial statements in a currency other than the reporting
currency of the consolidated entity. The risk is that there may be an adverse movement in the
exchange rate of the denomination currency in relation to the base currency before the date when
the transaction is completed. Investors and businesses exporting or importing goods and services
or making foreign investments have an exchange rate risk which can have severe financial
consequences; but steps can be taken to manage (i.e., reduce) the risk.
Types of exposure:
Transaction exposure
A firm has transaction exposure whenever it has contractual cash flows (receivables and
payables) whose values are subject to unanticipated changes in exchange rates due to a contract
being denominated in a foreign currency. To realize the domestic value of its foreign-
denominated cash flows, the firm must exchange foreign currency for domestic currency. As
firms negotiate contracts with set prices and delivery dates in the face of a volatile foreign
exchange market with exchange rates constantly fluctuating, the firms face a risk of changes in
the exchange rate between the foreign and domestic currency. It refers to the risk associated with
the change in the exchange rate between the time an enterprise initiates a transaction and settles
it.
Applying public accounting rules causes firms with transactional exposures to be
impacted by a process known as "re-measurement". The current values of contractual cash flows
are re-measured at each balance sheet date. If the value of the currency of payment or receivable
changes in relation to the firm's base or reporting currency from one balance sheet date to the
next, the expected value of these cash flows will change. U.S. accounting rules for this process
are specified in ASC 830, originally known as FAS 52. Under ASC 830, changes in the value of
these contractual cash flows due to currency valuation changes will impact current income.
Economic exposure:
A firm has economic exposure (also known as forecast risk) to the degree that its market
value is influenced by unexpected exchange rate fluctuations. Such exchange rate adjustments
can severely affect the firm's market share position with regards to its competitors, the firm's
future cash flows, and ultimately the firm's value. Economic exposure can affect the present
value of future cash flows. Any transaction that exposes the firm to foreign exchange risk also
exposes the firm economically, but economic exposure can be caused by other business activities
and investments which may not be mere international transactions, such as future cash flows
from fixed assets. A shift in exchange rates that influences the demand for a good in some
country would also be an economic exposure for a firm that sells that good. Economic Exposures
cannot be hedged as well due to limited data, and it is costly and time consuming. Economic
Exposures can be managed by, product differentiation, pricing, branding, outsourcing, etc.
Translation exposure:
A firm's translation exposure is the extent to which its financial reporting is affected by
exchange rate movements. As all firms generally must prepare consolidated financial statements
for reporting purposes, the consolidation process for multinationals entails translating foreign
assets and liabilities or the financial statements of foreign subsidiary subsidiaries from foreign to
domestic currency. While translation exposure may not affect a firm's cash flows, it could have a
significant impact on a firm's reported earnings and therefore its stock price. Translation
exposure is distinguished from transaction risk as a result of income and losses from various
types of risk having different accounting treatments.
Contingent exposure:
A firm has contingent exposure when bidding for foreign projects or negotiating other
contracts or foreign direct investments. Such an exposure arises from the potential for a firm to
suddenly face a transactional or economic foreign exchange risk, contingent on the outcome of
some contract or negotiation. For example, a firm could be waiting for a project bid to be
accepted by a foreign business or government that if accepted would result in an immediate
receivable. While waiting, the firm faces a contingent exposure from the uncertainty as to
whether or not that receivable will happen. If the bid is accepted and a receivable is paid the firm
then faces a transaction exposure, so a firm may prefer to manage contingent exposures.
Measurement:
If foreign exchange markets are efficient such that purchasing power parity, interest rate
parity, and the international Fisher effect hold true, a firm or investor needn't protect against
foreign exchange risk due to indifference toward international investment decisions. A deviation
from one or more of the three international parity conditions generally needs to occur for an
exposure to foreign exchange risk.
Financial risk is most commonly measured in terms of the variance or standard deviation
of a variable such as percentage returns or rates of change. In foreign exchange, a relevant factor
would be the rate of change of the spot exchange rate between currencies. Variance represents
exchange rate risk by the spread of exchange rates, whereas standard deviation represents
exchange rate risk by the amount exchange rates deviate, on average, from the mean exchange
rate in a probability distribution. A higher standard deviation would signal a greater currency
risk. Economists have criticized the accuracy of standard deviation as a risk indicator for its
uniform treatment of deviations, be they positive or negative, and for automatically squaring
deviation values. Alternatives such as average absolute deviation and semi variance have been
advanced for measuring financial risk.
Value at Risk:
Practitioners have advanced and regulators have accepted a financial risk management
technique called value at risk (VaR), which examines the tail end of a distribution of returns for
changes in exchange rates to highlight the outcomes with the worst returns. Banks in Europe
have been authorized by the Bank for International Settlements to employ VaR models of their
own design in establishing capital requirements for given levels of market risk. Using the VaR
model helps risk managers determine the amount that could be lost on an investment portfolio
over a certain period of time with a given probability of changes in exchange rates.
A currency pair is the quotation of the relative value of a currency unit against the unit of
another currency in the foreign exchange market. The currency that is used as the reference is
called the counter currency or quote currency and the currency that is quoted in relation is called
the base currency or transaction currency.
Currency pairs are sometimes then written by concatenating the ISO currency codes (ISO
4217) of the base currency and the counter currency, separating them with a slash character.
Often the slash character is omitted. A widely traded currency pair is the relation of the euro
against the US dollar, designated as EUR/USD. The quotation EUR/USD 1.2500 means that one
euro is exchanged for 1.2500 US dollars. Here, EUR is the base currency and USD is the counter
currency.
The most traded currency pairs in the world are called the Majors. They involve the
currencies euro, US dollar, Japanese yen, pound sterling, Australian dollar, Canadian dollar, and
the Swiss franc.
The rules for formulating standard currency pair notations result from accepted priorities
attributed to each currency.
From its inception in 1999 and as stipulated by the European Central Bank, the euro has
first precedence as a base currency. Therefore, all currency pairs involving it should use it as
their base, listed first. For example, the US dollar and euro exchange rate is identified as
EUR/USD.
Historically, this was established by a ranking according to the relative values of the
currencies with respect to each other[citation needed], but the introduction of the euro and other
market factors have broken the original price rankings.
Other currencies (the Minors) are generally quoted against one of the major currencies. These
pairs are also referred to as currency crosses, or simply crosses. The most common crosses are
EUR, JPY, and GBP crosses.
The term base currency in the foreign exchange field is also used as the accounting
currency by banks, and is usually the domestic currency. For example, a British bank may use
GBP as a base currency for accounting, because all profits and losses are converted to the
sterling. If a EUR/USD position is closed out with a profit in USD by a British bank, then the
rate-to-base will be expressed as a GBP/USD rate. This ambiguity leads many market
participants to use the expressions currency 1 (CCY1) and currency 2 (CCY2), where one unit of
CCY1 equals the quoted number of units of CCY2.
Most traded currencies by value
Currency distribution of global foreign exchange market turnover
Other 6.3%
Total 200%
Cross pairs:
The currency pairs that do not involve the local currency are called cross currency pairs,
such as GBP/JPY when trading in the US. Pairs that involve the euro are often called euro
crosses, such as EUR/GBP. There are many local sites providing these types of local currency
crosses.
The existing of national monetary units poses a problem in the settlement of international
transactions. The exporter would like to get the payment in the currency of own country. For
instance, if American exporter of New York export machinery to Indian rupee will not serve
their purpose because Indian rupee cannot be used as currency inn rupees. Thus the exporter
requires payment in the importer’s country. A need, therefore, arises for conversion of the
currency of the importer’s country into that of the exporters country.
Foreign exchange: Foreign exchange is the mechanism by which the currency of one
country gets converted into the currency of another country. The conversion is done by banks
who deal in foreign exchange. These banks maintain stocks of foreign currencies in the form
of balances with banks abroad. For instance, Indian Bank may maintain an account with
Bank of America, new York, in which dollar are held. In the earlier example, if Indian
importers pay the equivalent rupee to Indian bank, it would arrange to pay American export
at New York in dolor from the dollar balances held by it with Bank of America.
Exchange rate:
The rate at which one currency is converted into another currency is the rate of exchange
between the currencies concerned. The rate of exchange for a currency is known from the
quotation in the foreign exchange market.
In the illustration, if Indian bank exchanged us for Indian rupee at Rs.40 a dollar, the
exchange rate between rupee and dollar can be expressed as
USD 1=Rs.40.
The banks operating at a financial center, and dealing in foreign exchange, constitute the
foreign exchange market. As in any commodity or market, the rates in the foreign exchange
market are determined by the interaction of the forces of demand and supply of the
commodity dealt, viz., foreign exchange. Since the demand and supply are affected by a
number of factors, both fundamental and transitory, the rates keep on changing frequently,
and violently too.
Inflation: inflation in the country would increase the domestic prices of the commodities. With
increase in prizes exports may dwindle because the price may not be competitive. With the
decrease in export the demand for the currency would also decline; this it in turn would result in
the decline of external value of the currency. It should be noted that it is the relative rate of
inflation in the two counties that cause changes in the exchange rates.
Interest rates: The interest rate has a great influence on the short-term movement of capital.
When the interest rate at a center rises, it attracts short term funds from other centers. This would
increase the demand for the currency at the center and hence its value. Rising of interest rate may
be adopted by a country due to money conditions or as a deliberate attempt to attract foreign
investment.
Money supply: An increase in money supply in the country will affect the exchange rates
through causing inflation in the country. It can also affect the exchange rate directly.
National income: An increase in national income reflects increase in the income of the residents
of the country. The increase in the income increases the demand for goods in the country. If there
is underutilized production capacity in the country, this would lead to increase in production.
There is a change for growth in exports too. Where the production does not increase in sympathy
with income rises, it leads to increased imports and increased supply of the currency of the
country in the foreign exchange market. The result is similar to that of inflation viz., and decline
in the value of the currency. Thus an increase in national income will lead to an increase in
investment or in the consumption, and accordingly, its effect on the exchange rate will change.
Resource discoveries: When the country is able to discover key resources, its currency gains in
value.
Capital Movements: There are many factors that influence movement of capital from one
country to another. Short term movement of capital may be influenced by the offer of higher
interest in a country. If interest rate in a country rises due to increase in bank rate or otherwise,
there will be a flow of short-term funds into the country and the exchange rate of the country will
rise. Reserves will happen in case of fall in interest rates.
Bright investment climate and political stability may encourage portfolio investment in the
country. This leads to higher demand for the currency and upward trend in its rate. Poor
economic outlook may mean repatriation of the investments leading to decreased demand and
lower exchange value for the currency of the country.
Movement of capital is also caused by external borrowings and assistance. Large-scale external
borrowings will increase the supply of foreign exchange in the market. This will have a favorable
effect on the exchange rate of the currency of the country. When a repatriation of principal and
interest starts the rata may be adversely affected.
Other factors include political factors, Psychological factors and Speculation, Technical and
Market factors.
The Central Government has been empowered under Section 46 of the Foreign Exchange
Management Act to make rules to carry out the provisions of the Act. Similarly, Section 47
empowers the Reserve Bank to make regulations to carry out the provisions of the Act and the
rules made there under.
The Foreign Contribution (Regulation) Act, 1976 is to regulate the acceptance and utilization of
foreign contribution/ donation or foreign hospitality by certain persons or associations , with a
view to ensuring that Parliamentary institutions, political associations and academic and other
voluntary organizations as well as individuals working in the important areas of national life may
function in a manner consistent with the values of a sovereign democratic republic.
It is basically an act to ensure that the integrity of Indian institutions and persons is maintained
and that they are not unduly influenced by foreign donations to the prejudice of India’s interests.
The Foreign Exchange Management Act (FEMA) is a law to replace the draconian Foreign
Exchange Regulation Act, 1973. Any offense under FERA was a criminal offense liable to
imprisonment, Whereas FEMA seeks to make offenses relating to foreign exchange civil
offenses. Unlike other laws where everything is permitted unless specifically prohibited, under
FERA nothing was permitted unless specifically permitted. Hence the tenor and tone of the Act
was very drastic. It provided for imprisonment of even a very minor offense. Under FERA, a
person is presumed innocent unless he is proven guilty. With liberalization, a need was felt to
remove the drastic measure of FERA and replace them by a set of liberal foreign exchange
management regulations. Therefore FEMA was enacted to replace FERA.
FEMA extends to the whole of India. It applies to all Branches, offences and agencies outside
India owned or controlled by a person resident in India and also to any contravention there under
committed outside India by any person to whom this Act applies.
FEMA contains definitions of certain terms which have been used throughout the Act. The
meaning of these terms may differ under other laws or common language. But for the purpose of
FEMA, the terms will signify the meaning as defined there under.
Authorized persons:
With the Reserve Bank has the authority to administer foreign exchange in India, it is recognized
that it cannot do so by itself. Foreign exchange is received or required by a large number of
exports and imports in the country spread over a vast geographical area. It would be impossible
for the reserve Bank to deal with them individually. Therefore, provisions has been made in the
Act, enabling the Reserve Bank to authority any person to be known as authority person to deal
in the foreign exchange or foreign securities, as an authorized dealer, money changer or off-
shore banking unit or any other manner as it deems fit.
Authorized dealers:
A major portion of actual dealing in foreign exchange from the customers (importers, exporters
and others receiving or making personal remittance) is dealt with by such of the banks in India
which have been authorized by Reserve
Bank to deal in foreign exchange. Such of the banks and selected financial institutions who have
been authorized Dealer.
CENTRAL GOVERNMENT
AUTHORISED PERSONS
FEDAI was establishing in 1958 as an association of all authorized dealers in India. The
principal functions of FEDAI are:
To frame rules for the conduct of foreign exchange business in India. These rules cover various
aspects like hours of business, charges for foreign exchange transactions, quotation of rates to
customer, inter bank dealings, etc. All authorized dealers have given undertaking to the Reserve
Bank to abide these rules.
Thus, FEDAI provides a vital link in the administrative set-up of foreign exchange in India.
Foreign exchange market facilitate the conversion of one currency to another for various
purposes like trade, payment for services, development projects, speculation etc. Since the
number of participants in the market s has increased over the years have become highly
competitive and efficient.
With improvement in trade between countries, there was a pressing need to have some
mechanism to facilitate easy conversion of currencies. This has been made possible by the
foreign exchange markets.
Considering international trade, a country would prefer to import goods for which it does not
have a competitive advantage, while exporting goods for which it has a competitive advantage
over others.
Thus trade between countries is important for common good but nations are separated by
distance, which that there is a lot of time between placing an order and its actual delivery. No
supplier would be willing to wait until actual delivery for receiving payments. Hence, credit is
very important at every stage of the transaction. The much needed credit servicing and
conversion of the currency is facilitated by the foreign exchange market.
Also the exchange rates are subject to wide fluctuations. There is therefore, a constant risk
associated exchange markets cover the arising out of the fluctuations in exchange rates through
“hedging”.
Forex market is not exactly a place and that there is no physical meeting but meeting is affected
by mail or over phone.
Foreign exchange transactions taking place in foreign exchange markets can be broadly
classified into Inter bank transactions and Merchant transactions. The foreign exchange
transactions taking place among banks are known as inter bank transactions and the rates quoted
are known as inter bank rates. The foreign exchange transactions that take place between a bank
and its customer known as’ Merchant transactions’ and the rates quoted are known as merchant
rates.
Merchant transactions take place when as exporter approaches his bank to convert his sale
proceeds to home currency or when an importer approaches his banker to convert domestic
currency into foreign currency to pay his dues on import or when a resident approaches his bank
to convert foreign currency received by him into home currency or vice versa. When a bank
buys foreign exchange from a customer it sells the same in the inter bank market at a higher rate
and books profit. Similarly, when a bank sells foreign exchange to a customer, it buys from the
inter bank market, loads its margin and thus makes a profit in the deal.
Remittance could take place through various modes. Some of them are:
Demand draft
Mail transfer
Telegraphic transfer
Personal cheques
TT buying rate is the rate applied when the transaction does not involve any delay in the
realization of the foreign exchange by the bank. In other words, the Nastro account of the bank
would already have been credited. This rate is calculated by deducting from the inter bank
buying rate the exchange margin as determined by the bank.
Bill buying rate: This is the rate to be applied when foreign bill is purchased. When a bill is
purchased, the rupee equivalent of the bill values is paid to the exporter immediately.
However, the proceeds will be realized by the bank after the bill is presented at the overseas
centre.
Types of selling rates:
TT selling rates
TT Selling rate: All sale transactions which do not handling documents are put through at TT
selling rates.
Bill Selling rates: This is the rate applied for all sale transactions with public which involve
handling of documents by the bank.
USD 1= Rs.41.15255/1650
More often, the rate would be quoted as 1525/1650 since the players in the market are expected
to know the ‘big number’ i.e., Rs.41. in the above quotation, once rate us Rs.41.1525 per dollar
and the other rate is Rs.41.1650 per dollar.
Direct quotation
It will be obvious that the quotation bank will be to buy dollars at 41.1525 and sell dollars at
Rs41.1650. if once dollar bought and sold, the bank makes a profit of 0.0125.
In a foreign exchange quotation, the foreign currency is the commodity that is being bought and
sold. The exchange quotation which gives the price for the foreign v\currency in term of the
domestic currency is known as direct quotation. In a direct quotation, the quoting bank will apply
the rule: “buy low’ sell high”.
Indirect quotation
There is another way of quoting in the foreign exchange market. The Mumbai bank quote the
rate for dollar as:
Rs.100=USD 2.4762/4767
This type of quotation which gives the quality of foreign currency per unit of domestic currency
is known as indirect quotation. In this case, the quoting bank will receive USD 2.4767 per
Rs.100 while buying dollars and give away USD 2.4762 per Rs.100 while selling dollars In other
words, “Buy high, sell low” is applied.
This buying rate is also known as the ‘bid’ rate and the selling rate as the ‘offer’ rate. The
difference between these rates is the gross profit for the bank and known as the ‘Spread’.
Where the agreement to buy and sell is agreed upon and executed on the same date, the
transaction is known as cash or ready transaction. It is also known as value today.
The transaction where the exchange of currencies takes place after the date of contract is known
as the Spot Transaction. For instance if the contract is made on Monday, the delivery should take
place on Wednesday. If Wednesday is a holiday, the delivery will take place on the next day, i.e.,
Thursday. Rupee payment is also made on the same day the foreign exchange is received.
The transaction in which the exchange of currencies takes place at a specified future date,
subsequent to the spot rate, is known as a forward transaction . The forwards transaction can be
for delivery one month or two months or three months, etc. A forward contract for delivery one
month means the exchange of currencies will take place after one month from the date of
contract. A forwards contract for delivery two months means the exchange of currencies will
take place after two months and so on.
If the spot rate is higher than the forward rate, there is forward discount and if the forward rate
higher than the spot rate there is forward premium rate.
Under direct quotation, premium is added to the spot rate to arrive at the forward rate. This is
done for both purchase and sale transactions. Discount is deducted from spot rate to arrive at the
forward rates.
Other rates
Buying rate and selling refers to the rate at which a dealer in forex is willing to buy the forex and
sell the forex. In theory, there should not be difference in these rates. But in practices, the selling
rate is higher than the buying rate. The forex dealer, while buying the forex pay less rupees, but
gets more when he sells the forex. After adjusting for operating expenses, the dealer books a
profit through the ‘buy and sell’ rates differences.
Transactions in exchange market consist of purchases and sales of currencies between dealers
and customers and between dealers and dealers. The dealers buy forex in the form of bills, drafts
and with foreign banks, from customer to enable them to receive payments from abroad.
The resulting accumulated currency balances with dealers are disposed of by selling instruments
to customers who need forex to make payment to foreigners. The selling price for a currency
quoted by the dealer (a bank) is slightly higher than the purchase price to give the bank small
profit in the business. Each dealer gives a two-way quote in forex.
Single Rate refers to the practices of adopting just rate between the two currencies. A rate for
exports, other for imports, other for transaction with preferred area, etc, if adopted by a country,
that situation is known as multiple rates.
Fixed rate refers to that rate which is fixed in terms of gold or is pegged to another currency
which has a fixed value in terms of gold. Flexible rate keeps the exchange rate fixed over a short
period, but allows the same to vary in the long term in view of the changes and shifts in another
as conditioned by the free of market forces. The rate is allowed to freely float at all times.
Current rate: Current rate of exchange between two currencies fluctuate from day to day or
even minute to minute, due to changes in demand and supply. But these movements take place
around a rate which may be called the ‘normal rate’ or the par of exchange or the true rate.
International payments are made by different instruments, which differ in their time to maturity.
A Telegraphic Transfer (TT) is the quickest means of effecting payments. A T.T rate is
therefore, higher than that of any other kind of bill. A sum can be transferred from a bank in one
country to a bank in another part of the world by cable or telex. It is thus, the quickest method of
transmitting funds from one center to another.
Slight rates applicable in the case of bill instrument with attending delay in maturity and
possible loss of instrument in transit, are lower than most other rates.
Similarly, there are other clusters of rates, such as, one month’s rate, 3month’s rate. Longer the
duration, lower the price (of the foreign currency in terms of domestic).
The exchange rate between two given currencies may be obtained from the rates of these two
currencies in terms of a third currency. The resulting rate is called the Cross rate.
Arbitrage in the foreign exchange market refers to buying a foreign currency in a market where
it is selling lower and selling the same in a market where it is bought higher. Arbitrage involves
no risk as rates are known in advance. Further, there is no investment required, as the purchase of
one currency is financed by the sale of other currency. Arbitrageurs gain in the process of
arbitraging.
Trading:
Currencies are traded in fixed contract sizes, specifically called lot sizes, or multiples
thereof. The standard lot size is 100,000 units of the base currency. Many retail trading firms
also offer 10,000-unit (mini lot) trading accounts and a few even 1,000-units (micro lot).
The officially quoted rate is a spot price. In a trading market however, currencies are
offered for sale at an offering price (the ask price), and traders looking to buy a position seek to
do so at their bid price, which is always lower or equal to the asking price. This price differential
is known as the spread. For example, if the quotation of EUR/USD is 1.3607/1.3609, then the
spread is USD 0.0002, or 2 pips. In general, markets with high liquidity exhibit smaller spreads
than less frequently traded markets.
The spread offered to a retail customer with an account at a brokerage firm, rather than a
large international forex market maker, is larger and varies between brokerages. Brokerages
typically increase the spread they receive from their market providers as compensation for their
service to the end customer, rather than charge a transaction fee. A bureau de change usually has
spreads that are even larger.[citation needed]
In the above case, someone buying 1 EUR will have to pay 1.33 USD; conversely one
selling 1 EUR will receive 1.33 USD (assuming no FX spread). Forex traders buy EUR/USD
pair if they believe that the Euro would increase in value relative to the US dollar, buying
EUR/USD pair; this way is called going long on the pair; conversely, would sell EUR/USD pair,
called going short on the pair, if they believe the value of the Euro will go down relative to the
US dollar. A pair is depicted only one way and never reversed for the purpose of a trade, but a
buy or sell function is used at initiation of a trade. Buy a pair if bullish on the first position as
compared to the second of the pair; conversely, sell if bearish on the first as compared to the
second.
Creators of digital currencies are often independent of the DCEs that trade the currency.
In one type of system, digital currency providers, or DCPs, are businesses that keep and
administer accounts for their customers, but generally do not issue digital currency to those
customers directly. Customers buy or sell digital currency from DCEs, who transfer the digital
currency into or out of the customer's DCP account. Some DCEs are subsidiaries of DCP, but
many are legally independent businesses. The denomination of funds kept in DCP accounts may
be of a real or fictitious currency.
Purchase date. On NSE the price of a future contract is in terms of INR per unit of other
currency e.g. US Dollars. Currency future contracts allow investors to hedge against foreign
exchange risk. Currency Derivatives are available on four currency pairs viz. US Dollars (USD),
Euro (EUR), Great Britain Pound (GBP) and Japanese Yen (JPY). Currency options are
currently available on US Dollars.
NSE was the first exchange to have received an in-principle approval from SEBI for
setting up currency derivative segment. The exchange launched its currency futures trading
platform on 29th August, 2008. Currency futures on USD-INR were introduced for trading and
subsequently the Indian rupee was allowed to trade against other currencies such as euro, pound
sterling and the Japanese yen. Currency Options was introduced on October 29, 2010.
Products:
Market Timings
Trading on the Currency Derivatives segment takes place on all days of the week (except
Saturdays and Sundays and holidays declared by the Exchange in advance). The market timings
of the currency derivatives segment are:
Normal Market Open: 09:00 hrs.
Normal Market Close: 17.00 hrs.
National Securities Clearing Corporation Limited (NSCCL) is the clearing and settlement
agency for all deals executed on the Currency Derivatives segment. NSCCL acts as legal
counter-party to all deals on NSE's Currency Derivatives segment and guarantees settlement.
National Securities Clearing Corporation Limited (NSCCL) is the clearing and settlement
agency for all deals executed on the Currency Derivatives segment. NSCCL acts as legal
counter-party to all deals on NSE's Currency Derivatives segment and guarantees settlement.
A Clearing Member (CM) of NSCCL has the responsibility of clearing and settlement of
all deals executed by Trading Members (TM) on NSE, who clear and settle such deals through
them.
National Securities Clearing Corporation Limited (NSCCL) is the clearing and settlement
agency for all deals executed on the Currency Derivatives segment. NSCCL acts as legal
counter-party to all deals on NSE's Currency Derivatives segment and guarantees settlement.
A Clearing Member (CM) of NSCCL has the responsibility of clearing and settlement of
all deals executed by Trading Members (TM) on NSE, who clear and settle such deals through
them.
Clearing Members:
A Clearing Member (CM) of NSCCL has the responsibility of clearing and settlement of
all deals executed by Trading Members (TM) on NSE, who clear and settle such deals through
them. Primarily, the CM performs the following functions:
Clearing ' Computing obligations of all his TM's i.e. determining positions to settle.
Risk Management ' Setting position limits based on upfront deposits / margins for each TM.
Trading Member - Clearing Member (TM-CM): A Clearing Member who is also a TM. Such
CMs may clear and settle their own proprietary trades, their clients' trades as well as trades of
other TM's & Custodial Participants.
Professional Clearing Member (PCM): A CM who is not a TM. Typically banks or custodians
could become a PCM and clear and settle for TM's as well as of the Custodial Participants
Deposit of Rs. 50 lakhs to NSCCL which forms part of the security deposit of the CM.
Clearing Banks:
NSCCL has empaneled 13 clearing banks namely Axis Bank Ltd., Bank of India, Canara
Bank, Citibank N.A, HDFC Bank, Hong Kong & Shanghai Banking Corporation Ltd., ICICI
Bank, IDBI Bank, IndusInd Bank, Kotak Mahindra Bank, Standard Chartered Bank, State Bank
of India and Union Bank of India.
Every Clearing Member is required to maintain and operate clearing accounts with any of
the empaneled clearing banks at the designated clearing bank branches. The clearing accounts
are to be used exclusively for clearing & settlement operations.
Clearing Mechanism:
A Clearing Member's open position is arrived by aggregating the open position of all the
Trading Members (TM) and all custodial participants clearing through him. A TM's open
position in turn includes his proprietary open position and clients’ open positions.
Proprietary / Clients’ Open Position:
While entering orders on the trading system, TMs are required to identify them as
proprietary (if they are own trades) or client (if entered on behalf of clients) through 'Pro / Cli'
indicator provided in the order entry screen. The proprietary positions are calculated on net basis
(buy - sell) and client positions are calculated on gross of net positions of each client i.e., a buy
trade is off-set by a sell trade and a sell trade is off-set by a buy trade.
Open Position:
Open position for the proprietary positions are calculated separately from client position.
For example,
For a CM - XYZ, with TMs clearing through him - ABC and PQR
Settlement Schedule:
Settlement of daily mark to market is carried out on T+1 day basis.
Final Settlement is carried out on T+2day basis.
Members with a funds pay-in obligation are required to have clear funds in their primary
clearing account on or before 8.30 a.m. on the settlement day. The payout of funds is
credited to the primary clearing account of the members thereafter.
Settlement Price:
Daily Settlement Price for mark to market settlement of futures contracts
Daily settlement price for futures contracts is the closing price of such contracts on the
trading day. The closing price for a futures contract shall be calculated on the basis of the
last half an hour weighted average price of such contract or such other price as may be
decided by the relevant authority from time to time.
Theoretical daily settlement price for unexpired futures contracts which are not traded
during the last half an hour on a day
Theoretical daily settlement price for unexpired futures contracts, which are not traded
during the last half an hour on a day, shall be the price computed as per the formula:
F0=S0 e(r-r) fT
Where:
F0 = Theoretical futures price
S0 = Value of the underlying
r = Cost of financing (using continuously compounded interest rate)
rf = Foreign risk free interest rate
T = Time till expiration
e = 2.71828
Rate of interest (r) may be the relevant MIFOR rate or such other rate as may be specified
by the Clearing Corporation from time to time.
Foreign risk free interest rate is the relevant LIBOR rate or such other rate as may be
specified by the Clearing Corporation from time to time.
Final Settlement Price for mark to market settlement of futures contracts:
Final settlement price for a futures contract for the various currencies shall be as
mentioned below, or as may be specified by the relevant authority from time to time.
Risk Management:
NSCCL has put in place a comprehensive risk management system, which is constantly
upgraded to pre-empt market failures. The Clearing Corporation ensures that trading member
obligations are commensurate with their net worth.
Violations:
PRISM (Parallel Risk Management System) is the real-time position monitoring and risk
management system for the Currency derivatives market segment at NSCCL. The risk of each
trading and clearing member is monitored on a real-time basis and alerts/disablement messages
are generated if the member crosses the set limits.
Clearing members, who have violated any requirement and / or limits, may reduce the
position by closing out its existing position or, bring in additional cash deposit by way of cash or
bank guarantee or FDR or securities or Government securities. Similarly, in case of margin
violation by trading members, clearing member has to set its limit for enablement.
KARVY, is a premier integrated financial services provider, and ranked among the top five
in the country in all its business segments, services over 16 million individual investors in
various capacities, and provides investor services to over 300 corporate, comprising the who is
who of Corporate India. KARVY covers the entire spectrum of financial services such as Stock
broking, Depository Participants, Distribution of financial products - mutual funds, bonds, fixed
deposit, equities, Insurance Broking, Commodities Broking, Personal Finance Advisory
Services, Merchant Banking & Corporate Finance, placement of equity, IPO’s, among others.
Karvy has a professional management team and ranks among the best in technology, operations
and research of various industrial segments.
EARLY DAYS:
The birth of Karvy was on a modest scale in 1981. It began with the vision and enterprise of a small
group of practicing Chartered Accountants who founded the flagship company …Karvy Consultants
Limited. Company started with consulting and financial accounting automation, and carved inroads into
the field of registry and share accounting by 1985. Since then, they have utilized their experience and
superlative expertise to go from strength to strength…to better their services, to provide new ones, to
innovate, diversify and in the process, evolved Karvy as one of India’s premier integrated financial
service enterprise.
Thus over the last 20 years Karvy has traveled the success route, towards building a reputation as
an integrated financial services provider, offering a wide spectrum of services. And we have
made this journey by taking the route of quality service, path breaking innovations in service,
versatility in service and finally…totality in service. Their highly qualified manpower, cutting-
edge technology, comprehensive infrastructure and total customer-focus has secured for them the
position of an emerging financial services giant enjoying the confidence and support of an
enviable clientele across diverse fields in the financial world.
KARVY GROUP COMPANIES
As the flagship company of the Karvy Group, Karvy Consultants Limited has always remained
at the helm of organizational affairs, pioneering business policies, work ethic and channels of
progress.
Having emerged as a leader in the registry business, the first of the businesses that Karvy
ventured into, company have now transferred this business into a joint venture with Computer
share Limited of Australia, the world’s largest registrar. With the advent of depositories in the
Indian capital market and the relationships that Company have created in the registry business,
Karvy believe that they were best positioned to venture into this activity as a Depository
Participant. Karvy were one of the early entrants registered as Depository Participant with NSDL
(National Securities Depository Limited), the first Depository in the country and then with CDSL
(Central Depository Services Limited). Today, Karvy service over 6 lakhs customer accounts in
this business spread across over 250 cities/towns in India and are ranked amongst the largest
Depository Participants in the country. With a growing secondary market presence, they have
transferred this business to Karvy Stock Broking Limited (KSBL), their associate and a member
of NSE, BSE and HSE.
The corporate website of the company, “www.karvy.com”, gives access to in-depth information
on financial matters including Mutual Funds, IPOs, Fixed Income Schemes, Insurance, Stock
Market and much more. A link called ‘Resource Center’, devoted solely to research conducted
by team of experts on various financial aspects like ‘Sector Research’, deals exclusively with in-
depth analysis of the key sectors of the Indian economy. Besides, a host of other links like ‘My
Portfolio’ which acts as a personalized and customized financial measure, makes this site
extremely informative about investment options, market trends, news and also about our their
company and each of the services offered here.
Karvy Stock Broking Limited, one of the cornerstones of the Karvy edifice, flows freely towards
attaining diverse goals of the customer through varied services. Creating a plethora of
opportunities for the customer by opening up investment vistas backed by research-based
advisory services. Here, growth knows no limits and success recognizes no boundaries. Helping
the customer create waves in his portfolio and empowering the investor completely is the
ultimate goal.
Karvy is a Member of National Stock Exchange (NSE), The Bombay Stock Exchange (BSE),
and The Hyderabad Stock Exchange (HSE).
Merchant Banking- Recognized as a leading merchant banker in the country, Karvy are
registered with SEBI as a Category I merchant banker. This reputation was built by capitalizing
on opportunities in corporate consolidations, mergers and acquisitions and corporate
restructuring, which have earned us the reputation of a merchant banker. Raising resources for
corporate or Government Undertaking successfully over the past two decades have given us the
confidence to renew company focus in this sector.
Karvy quality professional team and their work-oriented dedication have propelled company to
offer value-added corporate financial services and act as a professional navigator for long term
growth of companies clients, which includes leading corporate, State Governments, foreign
institutional investors, public and private sector companies and banks, in Indian and global
markets.
Karvy have traversed wide spaces to tie up with the world’s largest transfer agent, the leading Australian
company, Computershare Limited. The company that services more than 75 million shareholders
across 7000 corporate clients and makes its presence felt in over 12 countries across 5 continents has
entered into a 50-50 joint venture with KARVY.
Nearly 40% of the top-notch AMCs including prestigious clients like Deutsche AMC and UTI
swear by the quality and range of services that company offer. Besides providing the entire back
office processing, Karvy provide the link between various Mutual Funds and the investor,
including services to the distributor, the prime channel in this operation.
Karvy service enhancements such as ‘Karvy Converz', a full-fledged call center, a top-line
website (www.karvymfs.com), the ‘m-investor' and many more, creating a galaxy of customer
advantages. www.karvymfs.com
Issue Registry
In company voyage towards becoming the largest transaction-processing house in the Indian
Corporate segment, KARVY have mobilized funds for numerous corporate, and emerged as the
largest transaction-processing house for the Indian Corporate sector. With an experience of
handling over 700 issues, Karvy today, has the ability to execute voluminous transactions and
hard-core expertise in technology applications have gained company the No.1 slot in the
business. Karvy is the first Registry Company to receive ISO 9002 certification in India that
stands testimony to its stature
Corporate Shareholder Services
Karvy has been a customer centric company since its inception. Karvy offers a single platform
servicing multiple financial instruments in its bid to offer complete financial solutions to the
varying needs of both corporate and retail investors where an extensive range of services are
provided with great volume-management capability.
Today, Karvy is recognized as a company that can exceed customer expectations which is the
reason for the loyalty of customers towards Karvy for all his financial needs. An opinion poll
commissioned by “The Merchant Banker Update” and conducted by the reputed market
research agency, MARG revealed that Karvy was considered the “Most Admired” in the
registrar category among financial services companies.
The specialist Business Process Outsourcing unit of the Karvy Group. The legacy of expertise
and experience in financial services of the Karvy Group serves us well as company enter the
global arena with the confidence of being able to deliver and deliver well.
Here company offer several delivery models on the understanding that business needs are unique
and therefore only a customized service could possibly fit the bill. KARVY service matrix has
permutations and combinations that create several options to choose from.
KARVY operate in the core market segments that have emerging requirements for specialized
services. Their wide vertical market coverage includes Banking, Financial and Insurance
Services (BFIS), Retail and Merchandising, Leisure and Entertainment, Energy and Utility and
Healthcare.
(6) KARVY COMMODITIES BROKING LIMITED
At Karvy Commodities, they are focused on taking commodities trading to new dimensions of
reliability and profitability. They have made commodities trading, an essentially age-old
practice, into a sophisticated and scientific investment option.
Company enables trade in all goods and products of agricultural and mineral origin that include
lucrative commodities like gold and silver and popular items like oil, pulses and cotton through a
well-systematized trading platform.
The technological and infrastructural strengths and especially the street-smart skills make them
an ideal broker. Their service matrix is holistic with a gamut of advantages, the first and
foremost being their legacy of human resources, technology and infrastructure that comes from
being part of the Karvy Group.
Their wide national network, spanning the length and breadth of India, further supports these
advantages. Regular trading workshops and seminars are conducted to hone trading strategies to
perfection. Every move made is a calculated one, based on reliable research that is converted into
valuable information through daily, weekly and monthly newsletters, calls and intraday alerts.
Further, personalized service is provided here by a dedicated team committed to giving hassle-
free service while the brokerage rates offered are extremely competitive.
Karvy’s commitment to excel in this sector stems from the immense importance that commodity
broking has to a cross-section of investors & dash; farmers, exporters, importers, manufacturers
and the Government of India itself.
At Karvy Insurance Broking Pvt. Ltd., they provide both life and non-life insurance products to
retail individuals, high net-worth clients and corporate. With the opening up of the insurance
sector and with a large number of private players in the business, they are in a position to provide
tailor made policies for different segments of customers. In their journey to emerge as a personal
finance advisor, they will be better positioned to leverage their relationships with the product
providers and place the requirements of their customers appropriately with the product providers.
With Indian markets seeing a sea change, both in terms of investment pattern and attitude
of investors, insurance is no more seen as only a tax saving product but also as an
investment product. By setting up a separate entity, we would be positioned to provide the best
of the products available in this business to their customers.
KARVY have wide national network, spanning the length and breadth of India, further supports
these advantages. Further, personalized service is provided here by a dedicated team committed
in giving hassle-free service to the clients.
KARVY Alliances
Karvy Computershare Private Limited is a 50:50 joint venture of Karvy Consultants Limited and
Computershare Limited, Australia. Computershare Limited is world's largest -- and only global -
- share registry, and a leading financial market services provider to the global securities industry.
The joint venture with Computershare, reckoned as the largest registrar in the world, servicing
over 60 million shareholder accounts for over 7,000 corporations across eleven countries spread
across five continents. Computershare manages more than 70 million shareholder accounts for
over 13,000 corporations around the world.
Karvy Computershare Private Limited, today, is India's largest Registrar and Share Transfer
Agent servicing over 300 corporate and mutual funds and 16 million investors.
Quality Policy
To achieve and retain leadership, Karvy shall aim for complete customer satisfaction, by
combining its human and technological resources, to provide superior quality financial services.
In the process, Karvy will strive to exceed Customer's expectations.
Quality Objectives
Build in-house processes that will ensure transparent and harmonious relationships with its clients and
investors to provide high quality of services.
Establish a partner relationship with its investor service agents and vendors that will help in keeping up its
commitments to the customers.
Provide high quality of work life for all its employees and equip them with adequate knowledge & skills
so as to respond to customer's needs.
Continue to uphold the values of honesty & integrity and strive to establish unparalleled standards in
business ethics.
Use state-of-the art information technology in developing new and innovative financial products and
services to meet the changing needs of investors and clients.
Strive to be a reliable source of value-added financial products and services and constantly guide the
individuals and institutions in making a judicious choice of same.
Strive to keep all stake-holders (shareholders, clients, investors, employees, suppliers and regulatory
authorities) proud and satisfied.
Achievements
KARVY SERVICES
Stock markets are considered unpredictable, but they reflect the mood of the economy. Over the
years, investment in equities is considered to be the best long-term wealth maximization option.
The gap between unpredictability and a safety anchor in the market is bridged by the in-depth
knowledge of market functioning and changing trends, planning with foresight and choosing
one’s options with care. From that perspective, our equity broking and advisory services are
beyond just a medium for buying and selling stocks and shares. Instead, we provide services
which are multi-dimensional and multi-focused in its scope.
Karvy can boast of the largest-owned network among financial-services companies in India. This
has ensured that wherever a potential customer is located, it is never too far from a Karvy office.
Given the wide network, there are a number of trading terminals that provide retail stock-broking
facilities. Our services have increasingly offered customer-oriented convenience which we
provide to a spectrum of investors—high net-worth or otherwise—with equal dedication and
competence.
The onset of the technology revolution in the financial-services industry saw the emergence of
KSBL as an electronic custodian registered with the National Securities Depository Ltd (NSDL)
and Central Securities Depository Ltd (CSDL) in 1998. We set standards enabling further
comfort to the investor by promoting paperless trading across the country, emerging as the top-3
depository participant in India, in terms of customer serviced.
The paradigm shift from pure selling to knowledge-based selling drives the business today. With
our wide portfolio offerings, we occupy all segments in the retail financial services industry. A
highly qualified and dedicated team of professionals, drawn from the best of academic and
professional backgrounds, are committed to maintaining high levels of client service delivery.
This has propelled us to become one of the top distribution houses for equity and debt issues,
with an estimated market share of 15% in terms of applications and amount mobilized.
CURRENCY DERIVATIVES
Karvy Currency Derivatives Segment, a specialized group vertical within Karvy stock broking
limited, has been established in 2008 to cater to the growing needs of corporate houses to
manage currency exchange rate risk. With the changing dynamics and increasing volatility of
exchange rates across the globe, companies exposed to currency risk face the challenge of
maintaining continued profit margins. Currency Derivatives would be one of the best options to
manage any related exchange rate risk and be free from the worries of market uncertainties.
Portfolio management services are meant for high net worth individuals or institutions who want
a personalized management of their finances. A team of expert professionals conduct extensive
research on markets to provide a customized solution to achieve unique investment objectives.
This ensures best selection of investment opportunity within an asset class and active monitoring
for optimized results. Investors are provided with an all time access to track their portfolios. Our
PMS offerings range across two asset classes – Equity and Debt, with multiple options for each
asset class..
KARVY FORTUNE
Karvy Fortune, helps individuals and small organizations forge a partnership with Karvy which
is one of the largest financial services group serving over 60 million investors and provides
investor services to over 400 corporate houses in the country. Karvy Fortune already has a huge
network of franchisees, with presence in 330 cities, and a total of 787 business associates all over
India.
Karvy Fortune is constantly on the lookout for hard working, ambitious individuals who would
like to build a robust business without the usual hassles associated with starting an enterprise. As
a business partner of Karvy Fortune you get to be a part of an established broking house, which
is hugely successful in providing financial services to millions of customers. The risk reward
ratio for the individual/ enterprise becoming a franchisee is also very low considering this is an
already established business model and a brand name that has great value in the financial
markets in India.
INVESTMENT BANKING
Recognized as a leading merchant banker in the country, we are registered with SEBI as a
Category I merchant banker. We have built up a reputation as an able merchant banker over the
years by capitalizing on opportunities in corporate consolidation, mergers & acquisitions,
corporate restructuring and capital raising (including raising resources for corporates or the
government). Our success over the past two decades has given us the confidence to focus in this
sector with renewed vigor
Karvy Finance, an NBFC established in 2009, is primarily focused on Micro & Small Enterprise
Secured Business Loans with Loan against Property, Loan against Gold & Loan for Small
Commercial Vehicles. Karvy Finance believes in serving the underserved business customers in
India’s market for all their loan needs with a network of 75 neighborhood lending branches in 35
locations. Karvy Finance aims to provide Fast, Friendly & Flexible loan services to its target
audience
CHAPTER-4
DATA ANALYSIS AND INTERPRETAION
Calculation of foreign exchange volatility risk using RSI USD/INR
80
70
60
50
5-Day RSI
40
30
20
10
0
Interpretation: From the above analysis, the RSI of USD/INR is from 9-JAN-2018 states that
are nearly 75 points of RSI which is overbought and on 13th March, 2018 it is 0.25 which is at a
stage of oversold. Most of the USD/INR is volatility. To maintain Foreign Exchange Risk
Company need to maintain limited foreign exchange reserves for this season.
Calculation of foreign exchange volatility risk using RSI EUR/INR
5-Day RSI
80
70
60
50
40 5-Day RSI
30
20
10
0
Interpretation: From the above analysis, the RSI of EUR/INR is from 30-JAN-2018 states that
are nearly 100 points of RSI which is overbought and on 13th March, 2018 it is 0.25 which is at
a stage of oversold. Most of the EUR/INR is overbought. To maintain Foreign Exchange Risk
Company need maintain large portfolio of EUR Currency for this march.
Calculation of foreign exchange volatility risk using RSI GBP/INR
100
80
60 5-Day RSI
40
20
0
Date Price Change Gain Loss Avg Avg RS 5-Day
Gain Loss RSI
1-Feb-18 85.327 0.40 0.40 0.00 0.13 0.24 0.53 34.47
2-Feb-18 84.201 -1.13 0.00 1.13 0.13 0.46 0.28 21.70
3-Feb-18 83.896 -0.30 0.00 0.30 0.13 0.45 0.28 22.05
6-Feb-18 83.788 -0.11 0.00 0.11 0.13 0.31 0.41 29.21
7-Feb-18 84.251 0.46 0.46 0.00 0.17 0.31 0.56 35.93
8-Feb-18 84.081 -0.17 0.00 0.17 0.09 0.34 0.27 21.32
9-Feb-18 83.433 -0.65 0.00 0.65 0.09 0.25 0.38 27.33
10-Feb-18 83.51 0.08 0.08 0.00 0.11 0.19 0.58 36.83
13-Feb-18 83.879 0.37 0.37 0.00 0.18 0.16 1.11 52.63
14-Feb-18 83.34 -0.54 0.00 0.54 0.09 0.27 0.33 24.74
15-Feb-18 83.323 -0.02 0.00 0.02 0.09 0.24 0.37 27.03
16-Feb-18 83.769 0.45 0.45 0.00 0.18 0.11 1.60 61.60
17-Feb-18 83.276 -0.49 0.00 0.49 0.16 0.21 0.78 43.72
20-Feb-18 83.37 0.09 0.09 0.00 0.11 0.21 0.51 33.98
21-Feb-18 83.544 0.17 0.17 0.00 0.14 0.10 1.40 58.33
22-Feb-18 83.359 -0.19 0.00 0.19 0.14 0.14 1.05 51.29
23-Feb-18 83.73 0.37 0.37 0.00 0.13 0.14 0.94 48.52
24-Feb-18 83.09 -0.64 0.00 0.64 0.13 0.17 0.77 43.65
27-Feb-18 82.989 -0.10 0.00 0.10 0.11 0.19 0.59 37.05
28-Feb-18 82.609 -0.38 0.00 0.38 0.07 0.26 0.28 22.12
5-Day RSI
70
60
50
40
5-Day RSI
30
20
10
0
5-Day RSI
120
100
80
60
5-Day RSI
40
20
Interpretation: From the above analysis, the RSI of GBP/INR is from 16-JAN-2018 states that
are nearly 100 points of RSI which is overbought and on 13th March, 2018 it is 10.25 which is
at a stage of oversold. Most of the GBP/INR is overbought. To maintain Foreign Exchange
Risk Company need to long positions in GBP currency
Findings:
1. In the pair of USD/INR, the highest recorded RSI is 82.43 i.e., Overbought. Here
the investor can take short term position. The lowest recorded RSI is 26.14 i.e.,
Oversell. Here the investor can take long term position.
2. The highest recorded RSI when comparing EUR/INR is 71.19 i.e., Overbought.
Investor can have a short position. The lowest recorded RSI is 7.30 i.e., Oversell.
Here investor has to take long position.
3. In the comparison of USD/INR pair, the highest recorded RSI is 81.23 i.e.,
Overbought. The position of the investor is short. The position of the investor is
long.
4. From the above four comparisons, GBP/INR is being frequently traded. So the
highest recorded value of RSI i.e., 82.43 is treated as a situation to take long
position. The lowest value in this pair is the highest when compared to the other
pairs.
Suggestions:
In day trading it's all about momentum and there’s usually very little margin for error -
you have to be prepared to get in and out quickly, as the momentum will often turn on a
dime. Correctly judging when to pull the trigger for an entry or exit is an important
factor as to whether the trade is successful or not.
No doubt, experience is a huge part of the equation when it comes to reading momentum,
but fortunately there are some good tools available to traders that help flag possible
momentum changes. When used correctly, the Relative Strength Indicator is one of the
best.
Some traders use RSI to help identify building trends, but more often you will see it used
as a trigger for trade entry and exit. That strategy is quite simple, with a buy signaled
when the RSI plot line crosses from below to back above the oversold mark. On the
flipside, a sell signal flags when the RSI plot line crosses from above to back below the
overbought mark. When shorting a trade instrument the opposite holds true - the sell
trigger occurs on an overbought signal crossover and the buy (closing trade) trigger flags
on an oversold signal crossover.
While RSI can help trigger buy and sell signals, it's important to remember that oversold
and overbought conditions can last for extended periods of time. Moreover, when a trade
instrument has been strongly trending in either direction, the indicator is of little use and
can actually get traders in trouble, triggering sell signals into a strong market or buy
signals for a market that is heading south with strong momentum. As such, many traders
tend to use RSI in tandem with other indicators.
The formula for relative strength is: RSI = 100 – (100 / (1 + RS)). In this formula, RS =
(average of (x) days up closes) / (average of (x) days’ down closes). The main variable to
be set is the period you’d like to measure. A daily chart measures days (each bar on the
chart represents a 1-day period), while a 5-min. chart measures periods of 5 minutes
(each bar on the chart represents a 5-min period). The default is generally set at 14
(looking back 14 periods) for most charting packages, but it can set it to any period. The
shorter the period set, the more sensitive the reading. It’s worth noting there have been
recent studies that point to much shorter periods (2-period RSI) being more effective than
longer periods, such as the 14-period setting.
CONCLUSION
Despite showcase extension the benefit age is as yet a question mark, so organizations need to look for
zones of cutting edge like esteem included administrations, programming upgrade and advancement other
than just BPO administrations to make due in the market. In the present day economies are globalized and
the sound qualities of them is truly in question, the main protect for the product organizations is to
enhance their responsiveness to the evolving situations. Companies need to build up their administrations
to the seat check level or worldwide measures with the goal that they can have acknowledgment
everywhere throughout the world.
• The inconveniences of numerous exporters are not an aftereffect of the instability of the rupee yet
the negatively high-cost structure. Exporters are feasible just when outside trade income get changed over
into an ever increasing number of rupees. To enhance rupee reasonability and safeguard benefits,
exporters should be effective and profitable and cut down total rupee cost.
• Poor feasibility won't be settled by supporting. Thinking about a wasteful exporter, it requires a
breakeven swapping scale dollar to demonstrate benefit. It will astonish at a rate above Rs.45. It will fail
at any conversion scale underneath level
• In instance of forward contract. The forward contract secures in the exporter transformation of
dollar incomes to rupee incomes at larger amount, the market forward cost per dollar. The market will
definitely not purchase the exporters dollars freely be completely incapable exporters will be stuck in an
unfortunate situation regardless of the ideal support.
• The issue of practicality will be unraveled just when the exporters breakeven moves down to . By
differentiate, a wasteful exporter that is reasonable at dollar can exploit the fence.
• The understood dollar strategy will altogether protect the dollar benefit exporters. The
representatives and supervisors of trading firms will be paid verifiably in dollars. The cost to the
organization will be in dollars. Yet, the payout will be in rupees and at the overall trade rates. In the event
that the dollar debilitates, the dollar expenses of workers and chiefs will be paid out in rupees at say, if the
dollar fortifies the cost of representatives and supervisors will be paid out in rupees at sayTo beat these
issues exporters should make great administration by making accessible predominant human, social and
business framework regardless of whether the duty rates are high. Great administration bring down the
expenses of tasks and brings down the total expenses of working together.
BIBLIOGRPHY
BIBLIOGRAPHY
Websites
http://www.google.com
http://www.mecklai.com
http://www.stockcharts.com/
http://www.nseindia.com
BOOKS
1. Foreign Exchange Arithmetic-M.jeevanandam 2011
NEWS PARERS
The Economic Times
Business Line